CHICAGO -- U.S. Bank filed papers Tuesday disputing Syncora Guarantee Inc.’s account of the bank’s role in a court battle between the bond insurer and Detroit over the use of casino revenues.
In its filing, U.S. Bank, which acts as a custodian on the city’s interest-rate swaps, said it has not weighed in on whether the city triggered a default under the swap agreement, contradicting Syncora’s assertion that the bank confirmed the default.
The motion is the latest response to lawsuits between Syncora and the city. The battle is likely to be rendered moot any day as Detroit emergency manager Kevyn Orr reportedly settled with the swap counterparties to allow the city to shed the swaps and receive the casino revenue.
Before reaching the settlement, Orr sued Syncora July 5, accusing it of illegally ordering U.S. Bank to freeze the casino revenues that back the swap agreements, which are insured by Syncora. The request came after Detroit defaulted on a pension certificate payment, which Syncora also insures.
Syncora filed an emergency motion to overturn the lawsuit last Friday, saying that Orr lied about the nature of the swap agreement, which features a cross-default provision that leads to automatic cash trapping.
Syncora said in its motion that U.S. Bank “expressed its independent view” that the pension certificate default triggered a cross default.
But U.S. Bank said it has not expressed an independent view because that would be outside its role as a custodian. At the same time, the bank’s filing confirmed the accuracy of Syncora’s statement that the agreement includes a cross-default provision that allows for the cash trapping.
“U.S. Bank has not taken any position as to whether or not there has been an 'event of default’ under the collateral agreement,” the court papers said. “As custodian, it is not U.S. Bank’s role to determine whether or not an 'event of default’ has occurred, but rather to follow the clear terms of the collateral agreement.”
US Bank said it wrote both the city and Syncora in mid-June seeking clarification and asking how to proceed and for both parties to provide support for their legal positions.
The bank also said it objects to the “breadth and timing” of Syncora’s proposed discovery, which also prompted complaints from Orr.
Like Orr, the bank complained that Syncora’s discovery request is “overly broad and unduly burdensome.” The requests seek all communications and documents concerning the four-year-old collateral agreement by July 18 and a deposition by July 23.